Cigna Raises Forecast as Acquisition Expands Medicare

Cigna Corp., the third-biggest health
insurer by market value, raised its forecast for 2013 profit and
said fourth-quarter earnings swelled 49 percent, boosted by
higher enrollment in its Medicare plans for seniors.

Earnings, excluding one-time items, may be $5.85 to $6.30 a
share this year, the insurer said in a statement today, an
increase from its November forecast of $5.80 to $6.25. The
Bloomfield, Connecticut-based carrier beat analysts’ estimates
for the fourth quarter, helped by an 11 percent jump in
enrollment for its health plans.

Chief Executive Officer David Cordani spent $3.8 billion
last year for Healthspring Inc., expanding Cigna’s presence in
the growing market for government-backed Medicare plans. The
2013 outlook leaves room for bigger gains, given Cigna’s
assumption that medical claims will rise faster this year, said
Sarah James, a Wedbush Securities analyst in Los Angeles.

The forecast “screens as conservative, in our opinion,
based on survey work showing continued low commercial
utilization” for medical care, James said in a research note.
UnitedHealth Group Inc., the biggest health insurer, and Aetna
Inc. have said health-care costs will rise at the same pace as
last year.

2014 Optimism

Cigna became the latest health insurer to express optimism
about earnings in 2014, even as major provisions of President
Barack Obama’s health-care law kick in. Starting next year, the
law prevents insurers from charging higher rates of people with
pre-existing medical conditions and limits the profit carriers
can take out of Medicare plans, among other changes.

Cordani, on a conference call with analysts, said the
company nevertheless expects to increase net income and per-
share earnings. Employers still see value in Cigna’s ability to
rein in health-care costs, the CEO said.

“The change in the marketplace we see as creating more
opportunity than disruption for us,” he said.

Cigna rose 2.8 percent to $61.35 at the close in in New
York. The shares gained 42 percent in the past 12 months.

Fourth-quarter net income rose to $406 million, or $1.41 a
share, from $273 million, or 98 cents, a year earlier, the
company said. Earnings, excluding one-time items, of $1.57
topped by 8 cents the average of 16 analysts’ estimates compiled
by Bloomberg.

Revenue climbed to $7.62 billion from $5.43 billion a year
earlier, as membership in Cigna’s medical plans jumped to 14
million.

The insurer said Feb. 4 that it had reached a $2.2 billion
deal to shift its death-benefits liabilities to Warren Buffett’s
Berkshire Hathaway Inc. Cigna had been trying for more than a
decade to exit the business, whose volatile costs had become a
drag on its stock price, said Carl McDonald, a Citigroup analyst
in New York, in a Feb. 4 note to clients.

Under the deal, Berkshire will assume as much as $4 billion
in liabilities.